Chapter 6 – Betting exchanges

Betting exchanges have gained popularity in recent years as more and more people realise the potential they offer. That being said, the vast majority of sport bettors will only ever place a bet with a traditional bookmaker. By doing so they miss out on a great opportunity to boost their gambling profits.  

You may have heard about betting exchanges like Betfair and Matchbook but not sure exactly what they are or how they work. This article will give you an insight into the various fundamentals of betting exchanges.

Using a betting exchange is easy and very similar to using a regular bookmaker. If you are not already signed up to a betting exchange you should join one immediately after reading this article.

Part 1 – What is a betting exchange?

Before moving on with betting exchanges, here is just a quick reminder of what a bookmaker is.

A bookmaker or bookie is a person or organisation that accepts bets on a particular outcome of an event, typically sports events, and pays out money to the punters if their prediction turns out to be true. The amount of money that is paid to the customer is determined by odds.

Traditionally, betting has occurred between a customer and a bookmaker. The customer places a bet and if they are right they win. If they are wrong they lose and the bookmaker wins. A Betting exchange offers the opportunity for anyone to both place a regular bet and lay a bet. More on lay betting below. Contrary to a bookmaker, on a betting exchange you bet against other people.

From the above we can define a betting exchange as a tool that aims to bring the two persons together, so that they can place or exchange contradicting bets. In plain wording that means that one person will bet on e.g. Germany to win and another person will be on Germany to not win and the betting exchange will pair those bets. 

Put very simply, betting exchanges are a secure place where sports bettors can exchange bets with each other anonymously, at odds that they specify themselves. A betting exchange is basically a platform or middleman that match and settle bets. They generate revenue by charging a small commission when you place a bet.

Part 2 – Impact of Betting Exchange

Since the introduction of online betting exchanges, it is no longer the bookmakers exclusively that sets the prices or odds for sporting events. The bookmakers must always check and respond to what is happening on the betting exchanges to keep the market in balance. Even if you have never had a bet on a betting exchange before, you should be very happy about their existence as you will have benefited from the higher odds.

A visible example is the odds in horseracing. At one time it was unusual to see an outsider at odds of more than odds 300, but now many runners have starting prices of odds 600 or more. This increase is entirely due to the exchanges.

Another example, of the positive effect the betting exchanges have had on the odds market, is the overall increase of odds on all sporting events. The latter example is less visual but have ultimately benefitted all punters. Despite this overall increase in the odds market, you can still normally get much better odds on the betting exchanges than with a Bookmaker, typically 10-20% better according to the exchanges themselves.

The end of the Bookmakers?

Does the introduction of betting exchanges mark the death of bookmaker?

No, definitely not. Some punters may have moved their entire business to the betting exchanges but the traditional bookmakers still dominate the gambling market.

The point of this article is not the say that you should always use a betting exchange whenever you want to place a bet. There will still be occasions when a traditional bookmaker will offer more desirable odds than those that are available on the exchanges. Also, most bookmakers offer regular betting bonuses and free bets, which can boost income from betting. However, smart gamblers will include a betting exchange in their online betting arsenal.

Part 3 – Betting exchanges in Germany

The first and best-known betting exchange is Betfair, which was founded in 2000 and has its headquarters in Hammersmith in London. Betfair was listed on the London Stock Exchange until it merged with a bookmaker, Paddy Power, to form Paddy Power Betfair in 2016. Besides the betting exchange platform, Betfair also offer a sportsbook and online casino platform.

Unfortunately, due to licensing regulations in Germany, only the sportsbook and casino platform is available to German residents. So why did I mention Betfair? It often creates confusion that Betfair Sportsbook and Casino is available in Germany but not the betting exchange.

Although the betting exchange is not available, you should definitely sign up to the Betfair Sportsbook as they have a great range of markets and offers.

What betting exchanges are available in Germany?

Due to licensing regulations in Germany there is only one betting exchange available here, which is Matchbook. While it is always nice to have a choice, fortunately Matchbook is a great choice and you will most likely find everything you need from a betting exchange with Matchbook.

Part 4 – 7 key advantages of betting exchanges are:

  1. The ability to lay a selection if you think it will not win.
  2. The ability to back or lay a selection to be placed
  3. The increase in odds compared to the bookmakers
  4. Betting in-play or live on many events including horse racing. This can give you many advantages and opens the door to exiting new betting methods and systems that may increase your profits
  5. If you are very good a sports betting and start earning too much money with your bookmaker account, you will risk the bookmaker shutting down your account or restricting your stake. This is a very important advantage!
  6. The ability to trade on price movements in betting events to guarantee yourself a profit regardless of the result
  7. Arbitrage Opportunities. Bookie and exchange price discrepancies can allow you to take a no risk bet.

Part 5 – Back and Lay betting

Before you start placing bets at a betting exchange it is important to be aware of the difference between a back and lay bet. Lay betting will be covered further in this article.

Back Betting

You have probably already placed numerous back bets without referring to the as such. A back bet is the same as normal bookmaker bet e.g. betting on Germany to win a football game. However, to every bet there are two sides – a prediction that something will happen and a prediction that something will not happen. Basically, whenever you go to the bookmakers to place a bet on Germany to win a football game you’re backing an outcome. If you predict the outcome correctly you win money off the bookmaker. This is a Back Bet as you are betting on something to happen.

Lay Betting

The other side of that bet is that Germany will not win the football game. So, you can place a bet on Germany not to win. This is called a lay bet.

What about a draw? A draw does not affect your bets as we have bet on a team to win and the same team not to win. Hence, a draw will mean that the team does not win. And the lay bet wins.

Part 6 – Lay betting – the key to successful gambling

Rather than betting on something to happen, you can now bet on something to not happen and win money. Not sure what I mean? Read on and learn about the wonderful and profitable world of lay betting. 

In this article I will highlight some areas to be aware of when starting out with lay betting.

Ever since the introduction of betting exchanges in 2000, everyone has had the opportunity to play bookmaker by laying bets. Being the bookmaker can be very profitable when done right but it is not as easy as it may sound. If we knew the outcome of a selection before the game has finished, there wouldn’t be any sports betting left. Hence, there is no such thing as a safe bet or safe lay.

Laying a bet – the biggest advantage of betting exchanges

Probably the most important feature of a betting exchange is the ability to both back and lay a selection or a bet. You can back anything on the betting exchanges, you can lay anything on the exchanges, and you can back and lay the same selection.

But what does laying a selection mean?

Back Betting

You may already be familiar with betting on something to happen e.g. betting on Germany to win a football game. To every bet there are two sides – a prediction that something will happen and a prediction that something will not happen. Basically, whenever you go to the bookmakers to place a bet on Germany to win a football game you’re backing an outcome. If you predict the outcome correctly you win money off the bookmaker. This is a Back Bet as you are betting on something to happen.

Lay Betting

The other side of that bet is that Germany will not win the football game. So, you can place a bet on Germany not to win. This is called a Lay Bet.

What about a draw? A draw does not affect our bets as we have bet on a team to win and the same team not to win. Hence, a draw will mean that the team does not win. And the Lay Bet wins.

You can be the bookmaker

Laying a selection is often referred to as ‘Playing the role of a bookmaker’. Like a bookie, you offer a price against something to happen (e.g. a certain horse to win a race or a football match ending as a draw). You should of course only offer a price on something to happen if, in your opinion, there is a great chance that the horse will not win or the football match will not end in a draw. The betting exchanges simply match your lay bets with other customers who think the opposite of you (e.g. they think the horse will win or the match will end as a draw).

Part 7 – Know your lay liabilities

The odds that you offer determine how much money you will need to “pay out” if the selection actually wins (just like the bookie does when you have a winning bet with them). So, if you were to place a lay bet of €10 at odds 5,00, you would be liable to pay out €40 from your account if that selection won (The other punter gets their €10 back plus €40 profit). If, however, the selection does lose you get to keep the €10 staked by the other punter (just like the bookies have done with all your losing bets all these years).

STOP what you are doing

Now you may think “wow that sounds easy. I will just lay all the outsiders and earn a lot of money when the favourite wins.” STOP! If it was that easy, everyone would do it. If you keep placing lay bets on selections trading with very high odds, you will win most of the time but one loss (i.e. an outsider winning) can potentially wipe out all of your winnings and maybe more! A single €10 lay bet at odds 501 would see you liable for paying out €500 should the selection win but you would need to get 50 bets correct to win €500 at odds 501.

Therefore, it is strongly recommended that you decide upon a sensible upper limit for lay odds and stick to it no matter what. Just think about how many favourites lose over the cause of a football season. What odds you end up choosing is entirely up to you but now you are at least aware of the associated risk.

Laying odds 4,00 is the same as backing odds 1,33

In line with the above section, I will show why backing odds 1,33 is the same as laying odds 4,00. Many sports bettors will not back too many such short odds. The reason is that the reward is not worth the risk. So, if you will not back at odds 1,33, why would you lay odds 4,00?

Laying odds 4,00 is the same as backing odds 1,33 because you are risking three units to win one. In the lay example below, you can see that the liability is €30 while the potential win is €10 i.e. you are risking three units to win one. In the back bet the stake is €10 and the profit €3,33. Again, you are risking three units to win one.

You choose the odds at the betting exchanges

Another great advantage with the betting exchange is that you get to choose the odds. The odds you offer obviously need to be realistic in order to be matched, but if you are not happy with the current price being requested by other punters you can simply place an ‘order’ in the exchange at your odds and hope that somebody eventually accepts your offer. For, example you may feel that the current price of 3,00 is too high a price to lay a certain selection, so you can choose to offer a lay bet at 2.75. If you are lucky the price well be matched and you increase your profit. If the event starts without your lay bet being matched, your bet is simply cancelled so you gain or lose nothing.

Be aware if the odds are too good

Bets that have already lost, may sometimes still be available. Also, it can happen that the odds available may look unbelievably good, if that is the case there is probably a good reason. Most likely somebody has access to information that you don’t. It can be anything – change in line-ups, team struck down with flu virus or injury to the star player. So, if a fancied selection drifts alarmingly, beware, there may be a reason for it. You can always do a quick Google search to see if any information, previously unknown to you, show up.

Another reason for seemingly good odds is that televised events are delayed – often you will see odds 1000 appear suddenly on the screen, this is because a horse has just fallen, or a team scored etc. If you are watching on tv you will not be aware of this fact for maybe 2 seconds. 2 seconds may not seem like a long time, but it may still be time enough for a transaction to take place. So once again, take the sensible approach. If something is too good to be true, it often is.

Part 8 – What is liability on a Betting Exchange?

When using Betting Exchanges, it is crucial that you understand what liability is and the difference between stake and liability.

This article will explain Betting Exchange liability and what you especially have to look out for when placing a lay bet.

Liability is something that can cause confusion especially when laying bets. The liability is what you stand to lose if your bet loses.

When you place a normal bet at a bookmaker, the liability is easy to calculate as it is equal to your stake. So, if you bet €10 on a game the amount you stand to lose is €10. However, when we lay bets the liability looks different. The formula looks like this (stake x decimal odds) – stake = liability. Say you lay a bet at odds 6.00 with a €10 stake then your liability would be (10 x 6) – 10 = €50. You will note that the liability when laying a bet can be substantially higher than the back liability.

It is important to be careful and check your bet before clicking on the submit button as a wrong decimal can be very costly. There is a huge difference in laying odds 4,10 or odds 41 if your lay bet loses. As shown from the screen shots below with a stake of €10, your liability will be €31 at odds 4,10 and a massive €400, if you miss the decimal and accidentally lay odds 41.

The Betting Exchanges will not let you place a bet if you do not have enough money in your account to cover the liability. Hence, you can never lose more than the money you have in you Betting Exchange account. However, it is still unfortunate to lose a bet if you did not intend to place it.

If you do make a mistake, you can always lay the same bet so that they offset each other. You may have a small loss in the end but that is better than losing a large amount of money.  

Back bet liability

Regardless of the odds, your liability with a normal bet, back bet, bookmaker bet, will always be the same as your stake.

Lay bet liability

Contrary to a back bet, when laying it is the odds that determine the total liability. If the stake is constant but you increase the odds, your liability will also increase.

High odds will win occasionally

There is no such thing a safe bet. If you choose to lay bets at high odds you will win the majority of your bets. However, occasionally outsiders win, which could potentially wipe out all the profit you have made. 

Liabilities offset each other

Lastly, if you lay more than one selection in the same game, the liabilities do not accumulate. If you for example lay Germany to win and also lay Germany to draw, then your bets will partially offset each other and reduce your overall liability. If you back and lay over 2,5 goals, your bets could, depending on the odds, potentially completely offset each other and the outcome of your bet be €0, regardless of how many goals was scored in the game. That is because you will have bet on both under 2,5 goals and over 2,5 goals. 

Chapter 7